NZ-EU free trade pact under consideration

DEAL MAKERS: European Council president Herman Van Rompuy met NZ Prime Minister John Key at The Hague.

New Zealand and the European Union are to pursue a free trade pact – but don't expect any action until at least 2015.

Prime Minister John Key made the announcement in The Hague after meeting European Commission president Jose Manuel Barroso and European Council president Herman Van Rompuy. He described it as "quite an important" meeting

Two-way trade between New Zealand and the 28 members of the EU totals $16 billion a year.

Key said the EU has, for the first time, agreed to consider a free trade agreement.

But he admitted an ambitious EU-US trade deal, as well as a pact with Canada, will take priority for the Europeans.

Further progress is also not possible until after European Parliament elections this year, but officials will undertake a scoping study.

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"We are actually seeing progress and a breakthrough that historically hasn’t been a option available to us," Key said.

The deal has the support of both the British Prime Minister David Cameron and German Chancellor Angela Merkel, who he met on the sidelines of the major international summit.

It comes after the Government put a major deal with Russia on ice following the Crimea crisis. Agreements with India and South Korea have also yet to be signed, and there has been no recent breakthrough on the Trans Pacific Partnership, for which negotiations were meant to be concluded late last year.

Two-way trade between New Zealand and the EU is worth about $16bn a year and has the potential to rise to $20bn by 2020.

But exporters are hamstrung by hefty tariffs - including 8.2 per cent on kiwifruit. By comparison, Chile pays nothing because it is already signed up to an FTA with the 28-country bloc.

"It is easy to look at Europe and think Greece and Spain and some of the well pronounced debt problems," Key said. "But sitting in amongst that are hundreds of millions of very wealthy consumers who earn a lot, spend a lot and fundamentally are the target market for what we sell."

Germany is a key trading partner - buying more than $700m worth of goods and services in 2013, primarily wine and agriculture products. New Zealand was once dependent on Britain for trade, but trading relations with Europe became fraught once it joined the then EEC in 1973.

In recent years, the EU has pursued deals with its Atlantic allies, and in South America.

"Growth has been reasonably subdued in this market but there are a lot of emerging countries where wealth is starting to be created here...it's still a big market," Key said.

A new deal would also give New Zealand exporters better options outside Asia.

"The risk for New Zealand is a concentration risk: that we sell everything to China," he said. "Which is great while China is strong. But if...they change consumer preference, [or] they had a slowdown in their economy, no-one wants to be completely dependent on the fortunes of another country."

The EU has upgraded its mission in Wellington and will soon appoint its first resident ambassador.